1962 (12) TMI 45 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Competency of the reference made by the Sales Tax Tribunal.
2. Whether old rule 65 (new rule 90) of the Orissa Sales Tax Rules is discriminatory and therefore offending Article 14 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Competency of the Reference:
The Sales Tax Department contended that the reference was not competent because if rule 65 is discriminatory, it would be void under Article 14 of the Constitution, rendering the proceedings under section 24(2) and (3) of the Orissa Sales Tax Act non-maintainable. However, the High Court had already directed the Sales Tax Tribunal under section 24(3) of the Act to state a case and refer the question to the Court. This directive implied that the High Court found the Tribunal's decision to decline the reference incorrect. Therefore, the High Court was not precluded from answering the question, disposing of the preliminary point in favor of the dealer.

2. Discrimination and Article 14:
The central issue was whether rule 65, which provided for compounding of tax for certain dealers, was discriminatory under Article 14 of the Constitution. The dealer argued that the rule was discriminatory because it imposed a tax based on a graduated scale related to gross turnover, which did not align with the Sales Tax Act's objective of taxing gross sales. The dealer contended that this classification denied equal protection of laws.

The Sales Tax Department argued that the rate of tax under rule 65 was uniform (three quarters of an anna in the rupee) and that the sliding scale was merely a method of computation, not a graduated rate. The Department cited section 5(1), proviso 2, of the Act, which allowed the government to prescribe conditions for compounding tax, and noted that section 4(1) of the Act already classified dealers based on a minimum turnover threshold of Rs. 10,000.

The Court outlined the principles for permissible classification under Article 14, emphasizing that classification must be based on an intelligible differentia and have a rational relation to the statute's objective. The Court acknowledged the presumption of validity in legislative classifications, especially in taxing statutes, and placed the burden of proving discrimination on the challenger.

Analysis of Rule 65:
The Court examined whether the classification in rule 65 was unreasonable or unrelated to the Act's objective of taxing sales in Orissa. The Court noted that the Act allowed for classification based on the extent of business and that it was reasonable for the State to impose higher taxes on dealers with larger turnovers. The Court referenced a similar case under the Bombay Sales Tax Act, where the Supreme Court upheld a classification based on turnover thresholds, finding no discrimination.

The Court concluded that rule 65's classification, which provided for compounding tax based on graduated percentages of gross turnover, had a reasonable nexus with the Act's objective. The rule aimed to equitably apportion the tax burden among dealers with varying turnovers, aligning with the initial classification in section 4(1) of the Act. The Court found that the classification in rule 65 was based on intelligible differentia and had a rational relation to the Act's objective.

Conclusion:
The Court held that old rule 65 of the Orissa Sales Tax Rules was not discriminatory and did not offend Article 14 of the Constitution of India. The reference was answered in the negative, with no order for costs. The separate judgment concurred, emphasizing that rule 65 provided an alternative mode of assessment, which was optional for dealers, and thus could not be deemed discriminatory. The Court also noted that some degree of inequality in taxation is inevitable, and the rule's classification was reasonable and related to the Act's objective.